Archive for the "Trading" Category

Once we have got some spare money, we start considering profitable investment methods. There are several alternatives to choose from: bank account, trust management, real estate, financial markets.

Depositing to a bank account is frequently preferred by investors as it is risk-free. Investing in a bank account does not require any special skills of capital management, it is very simple: you just go to a bank, leave your money on an account and watch your deposit accumulating interest. But yet there are a series of restrictions to remember about. Firstly, interest rates hardly run over inflation, which means that you gain almost no return as such. Secondly, as a rule, high interest is accrued on large deposits. But unfortunately, you might not have a sum with many zeroes at the end. Thirdly, such deposits are typically uwithdrawable either totally or partially; apparently, it is not convenient.

Another variant of investment is open-end funds based on the trust management principle. This way of investing funds carries more risks than the abovementioned one: no profitability is guaranteed, moreover, you could not receive the investment back. In addition, in case with open-end funds, an investor cannot influence the process of money management: after the shares are purchased, your money is managed by someone else, not you. The liquidity of shares is low too. In case with trust management, you have a strategy developed exclusively for you and you are still able to influence the process. Mind that the minimum capital of a customer is to be over 1000 USD. Both open-end funds and trust managers charge a certain commission for their work.

Forex offers trust management service as well within the framework of the PAMM system. The minimum deposit required is 1 USD and the return can be withdrawn at any moment.

Real estate is also a rather favourable sector to invest in. However not everyone can afford such an expensive purchase. Real estate items can be leased or sold at much of a profit. Profitable dealing with real estate takes profound knowledge of the housing market, thorough search for tenants or buyers, negotiating, consulting with specialists and months of waiting for an increase in housing prices.

Entering Forex requires less money than purchasing a real estate item. As for the working process, it is plain. Trades of any volume are carried out promptly anytime. There are sellers and buyers in various parts of the world every minute.

And the last way of investment we are going to dwell on is the stock market where securities are traded. “Securities” is a term used to loosely describe stocks, bonds and derivatives etc, i.e. documents that represent evidence of ownership of a certain asset. On the stock market profit is only gained when the rate is on increase. Margin trading is not held here which means that you cannot use a leverage to make trades more effective. Trading hours on the stock market are determined by those of a corresponding stock exchange.

Liquidity of currency operations is higher than liquidity of those with securities. Unlike stock exchanges, Forex has no specific location and is open 24 hours a day.

There are other investment alternatives of course. Your choice depends on your financial resources and analytical skills. Investment in Forex appears to have many advantages, including high liquidity, continuous trading process, enticing minimum deposit required, leverage, profits on both a bearish market and a bullish one.

It is worth noting however that the rest of investment ways, except for bank account, imply some risks. That is why, it is so important to develop your skills of market analysis and capital management.

A goal is a result you want to achieve. There is no point in doing something if it is not aimed at reaching a certain goal. Any objective should be well-determined; otherwise you may fail to achieve it. Today traders have good knowledge of management, which is very helpful in their daily work. Management implies some standards for goals to meet; the researchers have found out that objectives that meet these standards are more effective.

So, formulating objectives properly is crucial and easy with the help of a simple SMART methodology based on the following criteria:

S for Specific;

M for Measurable;

A for Achievable;

R for Realistic;

T for Time-based;

The criteria considered above are versatile; they can be applied to various aspects of our life as business, personal development etc.

Let us have a closer look at them:

S for Specific

Objective Setting should result in a clear answer to the question:”What will I do?” So, abstract or ambiguous formulations are no good. With a vague goal in mind, your results will be much different from what you planned. Forget objectives like “to earn much money” or “ensure decent income” as they lack any sense.

M for Measurable

Any goal should be characterized by certain parameters possible to be measured. These parameters help assess to what extent your objective has been achieved. This is a rather complicated criterion, particularly on Forex where forecasting profit is next to impossible. Nevertheless, planning some benchmarks is crucial to control the progress. You can set any parameters such as profit size, percentages or ratios, frequency of making trades, limits to their volume etc.

A for Achievable

An objective is in fact your impetus to solve small sub-goals lying on the way to the ultimate goal. That is why, to make it achievable, make sure that it conforms to your skills and abilities and is consistent with other objectives you have.

R for Realistic

Objectives should be feasible to reach, while sub-goals – common-sensible yet challenging. However you should be sure of your ability to achieve them. Rational ambition will further inspire you unless you overlook plotting a precise plan and defining a period for achievement of an objective.

T for Time-based

You need to outline a certain time period within which you will reach an objective. Otherwise, there is a risk you will never make it to the ultimate goal.

The stage of objective definition is followed by elaborating a detailed plan on the objective realization.

Forex is the international currency market. However, besides currencies there are other financial instruments traded on Forex. They are metals: gold, silver, platinum, etc.

The international market includes different types of metal operations: spot, swap, and forward deals, operations with derivatives (futures, options). If we are talking about Forex, we mean spot market as assets are not delivered to the purchaser. Metal trading is conducted using trading or web platform, so it does not differ from trading other financial instruments. Prices on the spot market depend on demand and supply, and buyer possesses proprietary rights as soon as he buys an asset.

Precious metals have dual character: they are both valuable industrial commodity and reliable investment instrument. Precious metals are considered by private and institutional investors to be instrument of speculation, hedging, and risk diversification.

The largest centers of metal trading are London, New York, and Zurich. The gold price is daily influenced by the fixing – estimation of equilibrium price based on the current demand and supply.

Compared to currencies, metals are also traded 24 hours a day, but one of the symbols in the pair is precious metal. Here are examples: XAU/USD for the gold/US dollar pair, XAG/USD for the silver/US dollar pair. Traditionally metal prices are quoted in the US dollars for troy ounce (31.1035 gram) and traded in lots. If the rate rises, it means that an ounce becomes more expensive and costs more US dollars. If the rate falls, the metal becomes cheaper against the US dollar.

The first place by trading volume is taken by gold. It is the safe haven for investors to wait out an economic turmoil.

The second place is taken by silver. It is cheaper but it can save its value. Sometimes silver price grows faster than the gold one.

As metal trading technique has small difference from the currency one, it does not require separate strategy. Methods of fundamental analysis and various technical indicators can be applied to metal trading. However, price of any financial instrument has its own dynamics. Precious metal market also has its ups and downs: metal prices are interrelated with the economical and political factors as well as the major currency rates. For example, Eurozone debt crisis has influenced the gold price: the precious metal price declined amid the euro rate plunge down. The gold price and the US dollar prices have invert correlation: growing concerns about the reserve currency force the gold price to rise, and when the US dollar strengthens, the gold price moves down. High volatility on the currency market can cause sharp movements on the metal market.

Nevertheless, investments in the precious metals are rather safe. During the crisis investors often choose gold or silver to keep their money safe.

Speaking about Forex trading efficiency, people often mention teamwork. Who is more efficient on Forex: individual trader or a team of traders working in a synch? Traditionally, every private investor is for himself on Forex. However, teamwork may vary a bit, being formal or informal. Traders have not agreed on teamwork efficiency though. Some say that a team is totally unsuitable on Forex while others find good reasons in defense of a collective mind. We will consider pros and cons as well.

Physiological aspects of team and individual trading are considered as the most controversial issues. Trading alone, you are alone responsible for your decisions which you do not need to coordinate with other traders. You spend on market analysis as much time as you deem necessary to make a trade. Still a possibility that you make a wrong decision is high. A man has limited capabilities, and provided that you are not enough skilled, a risk to lose is much higher.

In a team, responsibility is shared by its members both psychologically and econominally. A team collectively discusses a problem and elaborates a decision that will satisfy all its members. It does not annul risks though. Collective decisions may be even more risky than individual. It is again associated with psychology of teamwork: a team may overestimate the value of a profitable trade and underestimate the risk of losing. Working as a team, people normally tend towards positive risks. Moreover, members may confide decision-making in their experienced co-member or leader thus decreasing efficiency of collective work.

Fortunately, a team may incorporate different people with different skills who can provide together a comprehensive evaluation of challenges. In addition, a total capital of a team is generally more that a capital of an individual trader.

A sort of hierarchy is recommended even for informal teams. Members should share coordinated purposes rather than seek personal profits. The main challenge is time which is required more to make a collective decision, especially when members disagree. But a team may have a formal or informal leader with a decisive vote. Team members can also set certain limits and divide scope of activity.

There is no categorical answer on whether it is better to trade on Forex alone or in a team. Nevertheless, most traders agree that if you work in a team, you should better make sure that your team consists of professions only who know their business and can follow rules.

Is there any sense in recording your observations and conclusions? This question is answered affirmatively by many traders. They believe that keeping a trading journal contributes to self-discipline and helps to systematize the experience gained.

Apart from a traditionally used journal, there are other ways to record your observations. It is a well-known fact that people are divided into auditory learners, visual learners and kinesthetic learners (also known as “tactile learners”) on the basis of the prevalent cognitive channel.

Auditory learners perceive information through listening. They tend to utter their thoughts and conclusions. Music means much for these people; it sets their mood and emotional state. People of this type are even likely to use a dictation machine to record and reproduce their thoughts.

Pictures and images dominate the mind of visual learners. Visual materials are crucial for cognition of these people. That is why charts, schemes and figures are the most powerful perception tools for them. In this context the Mind Mapping method introduced by British scientist Tony Buzan appears to be effective. The essence of this method is establishing associative relationships among concepts and visualizing these relationships. According to T.Buzan, associative thought processes are the most efficient in learning and memorizing, as our mind stores information in the form of associative maps. Mapping is based on employing graphical representations, colours, three-dimensional images, letters etc. A cognitive map is supposed to be a consistent hierarchy of concepts. An example of a mind map is represented below. It hardly reflects peculiarities of your trading system, yet it might facilitate the process of knowledge systematization. The mind mapping technique is applicable in numerous spheres of life indeed.

As for kinesthetic learners, they rely rather on their feelings, emotions and tactile sensations. They need more time for pondering and making a decision. Kinesthetic learners attach great significance to atmosphere and comfortable overall environment.

Try choosing a way of keeping a trading journal or data memorizing proceeding from your own personality type.

What are techniques of other traders? Many have a special notebook to record parameters of each particular trade, describe a trading strategy, including indicators employed and signals considered. In such a notebook you can also explain why a decision to open or close a trade was made. Later these records will be helpful for you to revise and correct your strategy. If you are a short-term trader, you can draw conclusions at the end of each day. Such a notebook allows fixing effective strategies, capital management methods, principles of indicators functioning and useful recommendations. It is also worth taking notes while testing new strategies and software products.

Some make screenshots with comments and store them in folders bearing certain dates. Many traders employ Excel for necessary calculations. Others prefer blogging in the Internet.

A journal of any format is especially important to keep at first stages of work so that you could systematize information, analyze your mistakes and trade sticking to the scheme elaborated. If you plan to trade on several accounts or with several brokers, you certainly need to keep records to avoid confusion. One can have on mind just a few ideas at once, since the human brain capacity is not unlimited. We tend to forget information, so well-structured and logically consistent records appear to be useful for recalling something important and putting thoughts in order.

As you can see, there are numerous ways of record keeping. It is up to you whether keeping a journal is helpful on Forex.